Permanent Establishment Risk in Bangladesh: Treaties, Remote Staff and EOR in 2026

Permanent establishment risk in Bangladesh: the 2026 position

Permanent establishment risk in Bangladesh is the question most foreign companies ask too late. A business can hire one sales manager in Dhaka, send engineers to a client site in Chattogram or let a senior employee work remotely from home, and only discover at audit that the National Board of Revenue treats that presence as a taxable branch. Once a permanent establishment exists, the foreign company has profits to declare, a return to file, withholding obligations to run and, frequently, years of exposure to unwind.

This guide explains how the risk arises under the Income Tax Act 2023 and Bangladesh's tax treaties, how remote employees, sales staff, contractors and project teams create exposure, what follows once a permanent establishment is found, how treaty relief works, and how far an employer of record or a contractor model reduces the risk. A five-treaty comparison and a checklist close the analysis.

Summary: Under section 2(92) of the Income Tax Act 2023, a permanent establishment includes not only offices, branches and project sites but also the furnishing of services through personnel in Bangladesh and certain dependent or associated persons connected with sales. Treaties narrow the test, but only for residents of treaty countries who claim relief properly. The safest models separate employment, contracting authority and revenue-generating activity, and document that separation.

Key point: The domestic definition of a service permanent establishment in section 2(92)(k) of the Income Tax Act 2023, as published in the authentic English text, sets no minimum number of days. Where no treaty applies, even a short consulting engagement delivered through personnel in Bangladesh can fall within it. Treaty thresholds, such as the six-month service test in the UAE convention, only help if the foreign company can show it is a treaty resident.

At a glance

Swipe or scroll →

Table of Contents

Why permanent establishment risk in Bangladesh matters in 2026

Bangladesh taxes non-residents on income that accrues or arises in Bangladesh, and section 27(b)(i) of the Income Tax Act 2023 deems income to arise in Bangladesh where it comes, directly or indirectly, through or from any permanent establishment in the country.[1] The permanent establishment is therefore the gateway concept: it turns a foreign company's business profits, which would otherwise be taxable only at home, into Bangladeshi taxable income.

Three developments have sharpened the issue. First, the domestic definition in section 2(92) is wide and has no time threshold for services. Second, the Finance Act 2026 widened the definition to capture a significant digital or online presence and confirmed that residence and permanent establishment status are determined under the relevant treaty, with domestic law applying only where there is no treaty.[2] Third, many foreign employers now have people in Dhaka without any registered office, exactly the fact pattern auditors examine.

The cost of getting it wrong

The exposure is not limited to tax on profit. A foreign company found to have a permanent establishment may face assessments for past years, interest, filing penalties and recharacterisation of payments it treated as final withholding. Managing permanent establishment risk in Bangladesh is therefore an employment and operations question as much as a tax one, and it belongs at the hiring stage, before a dependent agent or service PE question reaches an auditor.

The domestic definition under the Income Tax Act 2023

Section 2(92) defines a permanent establishment, in relation to business income, as the fixed place or place of business through which the business of a person is wholly or partly carried on. It then lists what the term includes: a place of management, branch, agency, office, warehouse, factory, workshop, mine, oil or gas well, quarry or other place for exploring or extracting natural resources, and a farm or plantation.[1]

The definition goes further than the classic fixed-place test in three ways. Clause (j) captures any construction site, construction, installation or addition project and any supervisory activity related to it. Clause (k) captures the furnishing of services, including consultancy services, by a person or by manpower engaged for the purpose, if the activities continue in Bangladesh in the same or connected work. Clause (l) captures any associated entity of a non-resident, or any person commercially dependent on it, that carries on activity connected with a sale the non-resident makes in Bangladesh.[1]

The 2026 digital presence extension

The Finance Act 2026 expanded the scope of a permanent establishment to include a significant digital or online activity or presence of a non-resident entity in Bangladesh with 100,000 or more digital or online customers or subscribers.[2] For software, platform and subscription businesses that have no staff in Bangladesh at all, this is a new head of exposure. It sits alongside section 27(b)(iv), which already deems income from the sale of goods or services by electronic means to purchasers in Bangladesh to arise in Bangladesh.[1]

A permanent establishment is taxed as a company

Section 2(31) of the Act defines "company" to include any liaison, representative or branch office of a foreign institution and any permanent establishment of a foreign entity or person.[1] The practical effect is that a permanent establishment is assessed like a company, at corporate rates, with corporate filing duties. A foreign enterprise cannot argue that, because it never registered a branch, it has no Bangladeshi taxable presence.

Agents and representative assessees

Separately from the permanent establishment definition, section 253 allows a person in Bangladesh to be treated as an agent of a non-resident where, among other things, the person is employed by or on behalf of the non-resident, has a business connection with it, or receives income for it. An independent broker dealing through a non-resident broker in the ordinary course of business is excluded, and no person can be treated as an agent without first being heard by the Deputy Commissioner of Taxes.[1] The Finance Act 2026 also widened the scope of representative assessees.[2] Local staff and partners can therefore become the collection point for tax the foreign company owes.

How tax treaties narrow the test

Section 244 of the Income Tax Act 2023 authorises the Government to enter into agreements for the avoidance of double taxation, and the National Board of Revenue publishes more than 40 such agreements.[1] [6] Since the Finance Act 2026, the residential status and permanent establishment of a foreign person are determined under the applicable treaty, and under domestic law only where there is no treaty.[2] For a treaty resident, the treaty definition is usually narrower and therefore decisive.

The business profits article in each treaty follows the familiar rule: profits of an enterprise are taxable only in its home state unless it carries on business in the other state through a permanent establishment, and then only so much as is attributable to that permanent establishment. The India convention, for example, attributes to the permanent establishment the profits it might be expected to make as a distinct and separate enterprise dealing wholly independently with the rest of the enterprise.[8]

Fixed place of business

Every treaty reviewed for this guide starts with a fixed place of business through which, or in which, the business is wholly or partly carried on, followed by a list that includes a place of management, a branch, an office, a factory and a workshop. The UAE and United States conventions add a sales outlet or store.[10] [11] Each treaty also excludes facilities used solely for storage, display, purchasing, collecting information or other preparatory or auxiliary activities.[7] [11] A co-working desk used to close deals is not auxiliary; a desk used solely to collect market information may be.

Construction and installation projects

Treaties replace the open-ended domestic project rule with a duration test. The UK, India and Singapore conventions treat a building site or construction or assembly project as a permanent establishment only if it exists for more than 183 days.[7] [8] [9] The United States convention applies the same 183-day threshold and extends it to installation projects and drilling rigs used for exploring or developing natural resources.[11] The UAE convention uses a period or periods aggregating more than six months within any twelve-month period and expressly includes supervisory activities.[10]

Service PE clauses

Of the five treaties compared below, only the UAE convention contains a dedicated service PE clause, and it is the clause most likely to affect consulting and IT businesses. It treats the furnishing of services, including consultancy services, through employees or other personnel as a permanent establishment where the activities continue for the same or a connected project for more than six months within any twelve-month period.[10] The UK, India, Singapore and United States conventions contain no equivalent clause in their permanent establishment articles.[7] [8] [9] [11]

The absence of a service PE clause is a real protection for residents of those states, because without a fixed place of business or a dependent agent, service income generally remains business profit taxable at home. It is not a full answer. Payments for technical or consultancy services may still attract withholding under domestic law, and the United States convention taxes independent personal services performed in Bangladesh by an individual present for more than 183 days in any twelve-month period or with a fixed base regularly available.[3] [11]

Dependent agents and sales staff

The dependent agent rule is where most commercial teams create exposure without realising it. Under the UK, India and Singapore conventions, a person acting for the enterprise is deemed a permanent establishment if that person habitually exercises a general authority to conclude contracts on its behalf, habitually maintains a stock of goods from which orders are filled, or habitually secures orders wholly or almost wholly for the enterprise or its group.[7] [8] [9]

That third limb, order-securing, is broader than the modern OECD-style test. A sales manager in Dhaka who never signs a contract, but who habitually wins orders that headquarters merely countersigns, can create a dependent agent permanent establishment under these older treaties. The domestic clause (l) is broader still, catching associated entities and commercially dependent persons carrying on any activity connected with a sale by the non-resident in Bangladesh.[1]

The UAE and United States formulations

The UAE convention limits the dependent agent test to habitually exercising an authority to conclude contracts in the name of the enterprise, or habitually maintaining a stock from which goods are regularly delivered. It adds that an agent whose activities are devoted wholly or almost wholly to one enterprise, on terms that differ from arm's length, is not an independent agent.[10] The United States convention covers general authority to conclude contracts and a stock-based limb that applies only where additional activity in Bangladesh has contributed to the sale.[11]

Practical controls for sales roles

Authority matrices should match what people actually do. Contracts should be negotiated on centrally set terms and approved and signed outside Bangladesh, with the local role performed as marketing support or lead generation. Email signatures, CRM approvals and powers of attorney are what an auditor will request when testing dependent agent status. Where a role genuinely needs local signing authority, the honest answer is often a local entity rather than an employee.

Remote employees, contractors and project sites

Remote work is the most common route into permanent establishment risk in Bangladesh for technology and services companies. A single employee working from home rarely creates a fixed place of business on that fact alone, because the home is not at the enterprise's disposal in the ordinary sense. The analysis changes when the employee is senior, meets clients at home, holds contracting authority, or the company pays for and requires a dedicated workspace.

Remote employees

The more significant risk for remote staff is the domestic service PE rule. Clause (k) of section 2(92) refers to services furnished by a person or by manpower engaged for the purpose, continuing in Bangladesh, without a day count.[1] If the remote employee delivers services to Bangladeshi customers, or performs core revenue-generating work, a non-treaty employer has a weak defence. A treaty resident is in a stronger position: most of the treaties compared here have no service PE clause, but it must still establish residence and keep the employee out of the dependent agent tests.

Employment income has its own source rule. Section 27(a) deems income from employment earned in Bangladesh to arise in Bangladesh wherever it is paid, and section 86 requires the person responsible for paying employment income to deduct tax at the average rate applicable to the employee's estimated income.[1] An offshore employer with no Bangladeshi payroll still has a salary compliance gap, independently of any permanent establishment finding. Our guide to employment law for expatriates in Bangladesh covers the labour side of the same arrangement.

Individual contractors

Engaging Bangladeshi freelancers under a services agreement usually reduces exposure, because a genuinely independent contractor acting in the ordinary course of its own business is not the foreign company's manpower or dependent agent. The model fails when the contractor works exclusively for one client, is integrated into its team and negotiates with its customers. The contractor may then be misclassified as an employee under labour law and treated as a dependent person for tax.

Project and site teams

Construction, installation, commissioning and supervision projects carry the clearest risk. Under domestic law, clause (j) has no duration threshold. Under treaties, the 183-day or six-month clocks usually run from the start of work on site, including preparatory work, and connected contracts are often aggregated. Mobilisation dates, site diaries, defects-period visits and subcontractor arrangements should be planned with the threshold in mind, and a contingency plan should exist for overruns.

Consequences once a permanent establishment exists

Once permanent establishment risk in Bangladesh crystallises, the permanent establishment is assessed as a company. For assessment years 2026-27 to 2030-31, the standard rate for companies other than listed companies, banks and other specified categories is 27.5 per cent, or 25 per cent where all transactions are made through bank transfer, subject to conditions.[5] Branches of foreign companies are taxed at the rate applicable to an unlisted company on net income.[4]

Registration and return filing

Section 166(1)(c) requires a non-resident having a permanent establishment in Bangladesh to file a return of income.[1] The Finance Act 2026 removed the filing requirement for a non-resident individual without a permanent establishment, which makes the presence or absence of a permanent establishment the dividing line for filing.[2] In practice the foreign company needs a tax identification number, books of account for the Bangladeshi activity and a defensible profit attribution. Our note on company tax registration in Bangladesh explains the registration steps.

Withholding no longer final

Section 119 requires the payer of an amount taxable in the hands of a non-resident to deduct tax at a rate not exceeding 30 per cent, as specified, and treats the deduction as the payee's minimum tax.[1] Under the Finance Act 2026, withholding suffered by a non-resident without a permanent establishment is final tax.[2] Once a permanent establishment exists, that finality is lost: the income must be returned and taxed on a net basis, with withholding credited against the liability.

The specified rates illustrate the stakes. Advisory, consultancy and professional services and technical services paid to a non-resident company attract 10 per cent, the same services paid to a non-resident individual 20 per cent, contractors 6 per cent, legal services 20 per cent, salary or remuneration 30 per cent and any other payment 20 per cent.[3] A permanent establishment finding can mean that a 10 per cent final withholding becomes a 27.5 per cent tax on attributable profit. The wider regime is set out in our guide to withholding tax in Bangladesh.

Branch profit remittance and transfer pricing

The definition of dividend in section 2(81)(e) includes any profit remitted outside Bangladesh by a company not incorporated under the Companies Act 1994, and remittance of after-tax branch profit attracts a branch profit tax of 20 per cent, which the authorised dealer bank requires to be paid before remittance.[1] [4] The transfer pricing chapter defines "enterprise" to include a permanent establishment, so dealings between head office and the Bangladeshi permanent establishment must be priced at arm's length.[1] See our analysis of transfer pricing in Bangladesh.

Foreign exchange consequences

Bangladesh Bank's consolidated circular on outward current account remittances, FEPD-1 Circular No. 40 of 30 September 2026, allows authorised dealers to remit branch profits without prior Bangladesh Bank approval, but only against audited Bangladeshi accounts, head-office accounts, reconciliations and either an auditor's certificate that the tax provision is sufficient or certified final assessment orders.[12] An undeclared permanent establishment cannot satisfy those conditions, so profit is trapped or must be extracted through payments that will themselves be scrutinised.

Treaty relief and residency certificates

Treaty protection is not automatic at the point of payment. Section 119(2) allows the National Board of Revenue, on an application with the required documents, to issue a certificate within 30 days that a non-resident, because of a tax treaty or any other reason, is not liable to tax or is liable at a reduced rate. The payer may then pay without deduction or at the reduced rate.[1] [3]

For a dependent agent or service PE question, the residence evidence is equally decisive. In practice the application rests on evidence that the payee is resident in the treaty state, normally a certificate of tax residence from its home tax authority, together with the contract, invoices and an explanation of why the income falls within the treaty article claimed. Residence matters because each treaty defines it. The UAE convention, for example, treats an individual as a UAE resident by reference to UAE nationality, and a company by reference to incorporation or recognition under UAE law.[10] A non-national executive based in Dubai may not be a treaty resident at all.

Reduced withholding rates

Treaties also cap withholding on passive income. Published treaty rates include 10 per cent on royalties for the UK, India, Singapore, UAE and United States conventions, and only the UAE convention among them provides a separate fees for technical services rate, also 10 per cent.[3] The United States convention also contains a limitation on benefits article, so a United States company must meet its ownership or activity tests to claim relief.[11]

Bangladeshi companies hiring abroad

The same rules work in reverse. A Bangladeshi company that sends staff to the UK, India, Singapore or the UAE, or hires sales agents there, can create a permanent establishment in that country under its domestic law and the treaty. Section 246 provides unilateral relief for resident taxpayers where foreign income is taxed in a country without a treaty, limited to the lower of the Bangladeshi and foreign average rates.[1] Where a treaty applies, the Bangladeshi company will normally need a residence certificate from the National Board of Revenue to claim relief abroad. Our double tax treaty planning team coordinates both ends of the analysis.

How an employer of record reduces permanent establishment risk in Bangladesh

An employer of record is a Bangladeshi entity that employs staff on a client's behalf. TRW offers this service: TRW becomes the legal employer in Bangladesh, runs payroll and statutory filings including salary withholding, and handles employment contracts, work permits and terminations under Bangladesh law, while the client directs the day-to-day work. Our international remote work and employer of record governance practice sets out the model.

The model addresses several exposures. The foreign company has no employees of its own in Bangladesh, so the "employed by the non-resident" limb of section 253 is less likely to bite, salary withholding under section 86 is handled locally, and labour compliance under the Bangladesh Labour Act 2006 sits with a local employer. For expatriate staff, Invest Bangladesh, which began operations on 23 August 2026 after the merger of BIDA, BEZA and PPPA, handles work permits and visa recommendations; zones under BEPZA follow their own process.[13] [14]

The limits of the employer of record model

An employer of record changes who employs the worker. It does not change what the worker does. If an employee hired through an employer of record habitually concludes or secures contracts for the foreign client, the dependent agent tests can still apply, because they look at the person acting on the enterprise's behalf rather than at the payroll entity. Clause (k) of the domestic definition also refers to manpower engaged for the purpose, which is wide enough to reach personnel supplied through a third party.[1]

An employer of record is therefore a risk-reduction tool, not an exemption from the dependent agent or service PE tests. An employer of record works best for engineering, support, research and back-office roles that serve the foreign group rather than Bangladeshi customers. It works least well for country managers with signing authority, for teams that deliver services to Bangladeshi clients over long periods, and for project sites. For those, a liaison office, branch or subsidiary may be the more honest structure; see our guide to the liaison office in Bangladesh.

Structuring a contractor model properly

A contractor model reduces permanent establishment risk in Bangladesh only where the contractor is genuinely independent. The contract should be a services agreement with defined deliverables, fees and termination rights, and the contractor should control how and when it works, use its own equipment, be free to serve other clients and invoice in its own name. It should hold no authority to negotiate or conclude contracts, and should not present itself to customers as the client's representative.

Payments must also follow the foreign exchange rules. A Bangladeshi contractor exporting services receives payment through an authorised dealer bank under Bangladesh Bank's regulations, and the inward remittance record becomes part of the evidence that the relationship is a cross-border service contract rather than disguised employment. Our guides to freelancer tax in Bangladesh and to employment contracts in Bangladesh explain how to keep the employment and contractor lines distinct.

Key institutions

Several authorities touch permanent establishment risk in Bangladesh, from assessment to remittance and work permits.

A practical checklist for managing permanent establishment risk in Bangladesh

The checklist below is the sequence we use when a foreign company plans its first Bangladeshi hires or reviews an existing footprint, covering the service PE, project and dependent agent tests in turn.

Swipe or scroll →

Review the position whenever a role, project or customer changes, and keep the evidence: authority matrices, contract approvals, site diaries, travel logs and residence certificates. A permanent establishment dispute is won on documents that exist before the question is asked. Our broader labour law compliance in Bangladesh guide covers the employment side of the same review.

When to move to an entity

Permanent establishment risk in Bangladesh becomes unmanageable when local staff need to sign contracts, Bangladeshi revenue is material, projects regularly exceed treaty thresholds, or the foreign company is not a treaty resident. A registered presence then converts an uncertain exposure into a known compliance cost. The TRW employment and labour practice works with our tax team to make that transition without breaking employment continuity.

Frequently asked questions

What is a permanent establishment under the Income Tax Act 2023?

Section 2(92) defines it as the fixed place or place of business through which a person's business is wholly or partly carried on, including offices, branches, factories, project sites, services furnished through personnel in Bangladesh and certain dependent or associated sales persons.[1]

Does the domestic service PE rule have a day threshold?

No. Clause (k) of section 2(92), as published in the authentic English text, applies where services continue in Bangladesh in the same or connected work, without a minimum number of days. Treaty thresholds apply only to treaty residents.[1]

Can a digital business with no staff have a permanent establishment in Bangladesh?

Yes. The Finance Act 2026 extended the definition to a significant digital or online activity or presence with 100,000 or more digital or online customers or subscribers in Bangladesh.[2]

Does a treaty override the domestic definition?

For treaty residents, yes. Since the Finance Act 2026, residence and permanent establishment status of a foreign person are determined under the applicable treaty, and under domestic law only where there is no treaty.[2]

Which Bangladesh treaties contain a service PE clause?

Of the UK, India, Singapore, UAE and United States conventions, only the UAE convention has one, triggered by services continuing for more than six months within any twelve-month period.[10]

Can a remote employee create a permanent establishment?

Yes, particularly where the employee holds or habitually uses contracting authority, secures orders, serves Bangladeshi customers or works from a space the employer controls. Salary earned in Bangladesh is also taxable in Bangladesh and subject to withholding under section 86.[1]

What tax rate applies to a permanent establishment?

A permanent establishment is treated as a company and taxed at the unlisted company rate, which is 27.5 per cent for assessment years 2026-27 to 2030-31, or 25 per cent where all transactions are made through bank transfer, subject to conditions.[4] [5]

How does a foreign company obtain reduced withholding under a treaty?

It applies to the National Board of Revenue under section 119(2) with the required documents, usually including a home-country tax residence certificate. The Board may certify a nil or reduced rate within 30 days.[1] [3]

Does an employer of record eliminate permanent establishment risk?

No. It moves employment, payroll and labour compliance to a Bangladeshi employer, but dependent agent and service tests look at what the worker does for the foreign company. Roles with contracting authority or long customer-facing projects still need separate analysis.[1]

Can branch profits be remitted without Bangladesh Bank approval?

Yes, through an authorised dealer, against audited accounts and tax evidence under FEPD-1 Circular No. 40 of 30 September 2026, after payment of the 20 per cent branch profit remittance tax.[4] [12]